Hungarian shares and currency rally on IMF bail-out

The Hungarian stock market surged 8.2pc and the currency rallied in reaction
to $25bn (£15.6bn) rescue package from the International Monetary Fund, the
European Union and the World Bank.

10:04AM GMT 29 Oct 2008

The country has been battered by the financial crisis because its banking system is heavily exposed to foreign financing at a time when investors are pulling back from developing economies worldwide.

The forint was at 257.47 to the euro from about 262 late yesterday and a two-year low point of 285 on Saturday - it has fallen by almost 20pc this month until a rally yesterday in anticipation of the IMF announcement.

Hungary's benchmark BUX share index, which has fallen heavily throughout October, also changed direction on Tuesday anticipating an IMF bailout.

The IMF said it had reached an agreement with Hungary for a $15.7bn loan deal, while the European Union stood ready with an additional $8.1bn in financing and the World Bank another $1.3bn.

The IMF's portion falls under a 17-month stand-by loan arrangement and could be approved by the IMF board in early November.

"The Hungarian authorities have developed a comprehensive policy package that will bolster the economy's near-term stability and improve its long-term growth potential," IMF Managing Director Dominique Strauss-Kahn said in a statement.

"At the same time it is designed to restore investor confidence and alleviate the stress experienced in recent weeks in the Hungarian financial markets," he added.

The agreed financing by the IMF is more than 10 times Hungary's IMF quota, way above the limit of three times the quota for countries in trouble. Each IMF member is assigned a quota based on its size in the world economy, which determines its financial commitment to the fund, its voting power, and has a bearing on how much it can borrow from the global lender.

Strauss-Kahn said the core measures of the program should help improve Hungary's fiscal balance and strengthen its financial sector.

"Specifically, the package includes measures to maintain adequate domestic and foreign currency liquidity, as well as strong levels of capital, for the banking system," he said.